Mass. Market: Auto insurance appeals board may be scrapped

Jon Chesto

Sunday

Feb 22, 2009 at 12:01 AMFeb 22, 2009 at 10:01 PM

The route to a competitive auto insurance market has just hit another big pothole. Many insurance agents are urging lawmakers to put the brakes on a plan to eliminate the state's independent review process for accident-related surcharges.

The route to a competitive auto insurance market has just hit another big pothole.

Many insurance agents are urging lawmakers to put the brakes on a plan to eliminate the state's independent review process for accident-related surcharges.

Massachusetts motorists have long enjoyed a unique system that allows them to argue their case before a Division of Insurance appeals board if they have been ruled to be at fault for an accident.

But that system - one that saves money for thousands of drivers each year – is about to go away. Rules that state Insurance Commissioner Nonnie Burnes set into motion would eliminate the review process for accidents in which claims are paid after April 1. Instead, drivers would need to seek redress from the insurers themselves - who aren't necessarily unbiased judges.

Frank Mancini, CEO of the Massachusetts Association of Insurance Agents, says his group swung into a lobbying campaign after Burnes issued a public notice about the pending change last month. So far, Mancini says 125 representatives and 24 senators - nearly three-fourths of the state Legislature - have signed on to a bill that would keep the appeals board intact.

Mancini argues that the shift to a more competitive market that first took hold a year ago under Burnes' direction can continue without jettisoning the appeals board. With roughly half of the board's decisions coming down on the side of motorists, Mancini says, the process gives drivers a crucial avenue if they feel like they've hit a dead end with their insurers.

Some locally based insurers are siding with Mancini's group. John Donohue, CEO of Arbella Insurance Group in Quincy, says the current system has been fair to consumers and insurers. An at-fault determination, Donohue says, could haunt drivers for years even if they choose a new insurer.

From Burnes' perspective, the switchover is a necessary component in her broader plan to make this state's complex auto market more like what exists in other states.

Just over a year ago, Burnes became the first insurance commissioner in decades to ditch the state's longstanding system of establishing the same rate structure for all insurers in favor of one that allows companies a wide range of choices in what they want to charge.

Burnes says the board handles about 50,000 cases each year, representing a fraction of the state's roughly four million drivers. She says appellants will benefit under the new system because they'll no longer need to pay a $50 processing fee or take a day off from work to argue their cases. The disputes should be handled more quickly by the insurers themselves. And Burnes says her agency will monitor their performance to ensure they are being fair.

Burnes views the appeals board as an anachronism that's no longer necessary now that insurers have set up their own merit rating plans. She says some insurers may forgive one accident or wipe the slate clean after three years instead of six as a way to lure or keep customers in a competitive market.

The free market, Burnes argues, will act as the ultimate judge. Under her new system, consumers ultimately can shop for a new insurer if they're unhappy with the way a dispute was handled. They could have shopped around before the new rules took effect last April, but there were few differences among insurers' offerings under the old system.

One of Burnes' goals was to draw more competitors to this state by making its rules more in line with those in the other 49. But the change hasn't yet led to a gold rush of out-of-state prospectors: Only a few insurers have joined the nearly 20 companies that did business here before the new competitive rules were put in place.

Jim Harrington, executive director of the pro-reform Massachusetts Insurance Federation, says dropping the appeals board is an important next step in spurring more insurers to come here.

Harrington, whose group represents insurers, says the agents that resisted the initial call for more competition are just presenting a new roadblock. He says consumers can always file a complaint with Burnes' agency about a particular insurer if they're unhappy with how the company has handled their case.

That option certainly won't satisfy Sen. Stephen Buoniconti of West Springfield and Rep. Paul Donato of Medford, the two lead sponsors of the bill to keep the appeals board. They recognize they're in a race against time to get a bill to Gov. Deval Patrick's desk by the end of March.

If they miss the deadline, they say they still hope to get the bill passed later this year - as the appeals board will stay in place for several months to take care of the backlog of cases.

Buoniconti says lawmakers will hear from irate constituents if the current appeals system expires and motorists learn they can no longer get an impartial hearing officer to review their cases. Buoniconti, the Senate chairman of the financial services committee, says he is trying to warn his colleagues of the political backlash that could occur if they let the issue linger.

Burnes, a Superior Court judge before Patrick tapped her for her current job, knew it wouldn't be easy to break apart the state's rigid rate-setting system.

Still, Burnes pursued the reforms, hoping that loosening the restrictions on insurers would encourage more competition. But the controversy over the appeals board's fate raises new questions for consumers about how much deregulation will actually benefit them as well down the road.

Jon Chesto is the business editor of The Patriot Ledger. He may be reached at jchesto@ledger.com.

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